Mumbai: India’s bonds gained for a fourth week, pushing yields to the lowest level since April 2005, on speculation slowing inflation will prompt the central bank to reduce borrowing costs.

The benchmark 10-year bond completed its best week in almost two months after a report on Thursday showed the annual inflation rate unexpectedly dropped to a seven-month low. The slide in crude oil prices prompted the government to cut petrol and diesel prices on Friday, raising optimism lower fuel costs will drive down inflation further.

Investors are expecting rate cuts sooner than later as inflation is showing a secular trend downward, said Srinivasa Raghavan, head of treasury at IDBI Gilts Ltd in Mumbai, a primary dealer that underwrites government debt sales. There’s scope for bond yields to decline further.

The yield on the 8.24% note due April 2018 this week dropped 32 basis points to 6.76% in Mumbai, according to the central bank’s trading system. The price climbed 2.2525 per 100-rupee face amount to 110.1525. A basis point is 0.01 percentage point.

The Reserve Bank of India (RBI) has cut the benchmark repurchase rate twice since 20 October, lowering it to 7.5% from a seven-year high of 9%. The bank may cut the rate to at least 6% this month, Raghavan said.